Tag Archives: offshore corporation

New GOP Tax Savings in Preparing Form 5471 for the Controlled Foreign Corporation

The new  GOP tax bill has created new hidden tax savings.  While preparing Form 5471 for the Controlled Foreign Corporation, you want to make important elections.

Starting in 2018, Form 5471 is full of international tax planning and tax savings.  As you prepare Form 5471, carefully look at the instructions.  They hint at the hidden tax savings. (If this is the first year or a late filing, then please see this link.)

 It is here, in the fine but dull print, that you will find your tax savings.  Preparing Form 5471 for the Controlled Foreign Corporation is an art form.  

For example, did you know that an offshore corporation acting as a captive finance company can avoid U.S. taxes?  

Or that a foreign contract manufacturer related party sales are tax-free?

Or the special foreign investment fund (such as a foriegn ETF) and controlled foriegn corporation tax plan on this link.

Video on Preparing Form 5471 for the Controlled Foreign Corporation

The  video below is from an international tax class that I gave to the California Society of CPAs on preparing Form 5471 for the Controlled Foreign Corporation

If you want to start to save taxes while preparing your Form 5471, then contact me, Brian Dooley, CPA, MBT at [email protected]

What is the Advantage of an Offshore Foreign Shelf Corporation?

With so many emails asking  What is the Advantage of an Offshore Foreign Shelf Corporation,  I decided to write this post.  The answer is going to date me.

In the old days, before the internet, each state and country had cumbersome corporate laws.   The states had laws to protect shareholders even for a closely held corporation (used by small business).  The corporation had to be approved by the state’s secretary of corporations or the secretary of state.

Foreign countries had similar laws.    In the old days, forming a corporation would take weeks and longer if the state bureaucrat had a question.  In the U.S, the laws have changed.  You can get a corporation  or an LLC in just a few days? 

However, Most foreign countries continue to have outdated these laws. 

Entrepreneurs move fast.  To please their client, attorneys would form a few corporations just to keep on their bookshelf.   Last century, your attorney would give you a book, called the corporate kit.

The book included blank stock certificates, a stock ledger, a section to keep the corporate minutes and of course a corporate seal.   While in the U.S. with the use of LLCs and firms like LegalZoom, these formalities have disappeared.  Further, the states can approve a corporation in a day or so.

However, in most foreign countries the slow bureaucrat remains.   I was in Guernsey, Channel Islands with a local attorney at the Guernsey Government’s office that approves corporations.  At was about 4:56 when we started to hand the paper work to the trusted government employee.

He carefully read each line and then abruptly closed the window to his booth.  It was 5pm and time to go home.  Yep, we had to come back  and restart the process.  A few weeks, later the Government approved the corporation.

In most countries (other than the United States) law firms still have bookshelves with a few corporate kits on the shelf… thus  a shelf corporation.

Here is how a shelf-corporation works.

You meet with the attorney.  You need a corporation asap for an important transaction.   It is going to take weeks to get the name you want and for the  government to approve the corporation.  But, for a few hundred dollars more you can purchase a corporation (and its  corporate kit) from the attorney.

Yes, you can have a corporation right now.   The attorney walks over to his bookshelf, grabs the corporate kit and hands the kit to you.    The attorney applies for a name change to the name that you need.   

Here you have the answer to the question  “What is the Advantage of an Offshore Foreign Shelf Corporation?”  It is speed.    If you would like to learn more about U.S. international taxation, the please check out this link.

If you need help with your international business, then send me an email ([email protected]).


Foreign Investors Learn Why a Foreign Corporation is U.S. Death Tax Trap

The problem for the non-resident alien is that their estate tax exemption is $60,000 and not $5.3 million (as it is for Americans).   And there is one more problem… the U.S. estate tax planner.  While the U.S. has a tax on the estate, other countries tax the recipient.  This tax is called an “inheritance tax.”

Thus the  American tax planner also must know “international inheritance tax planning” for the foreign country of the investor.

They advise the nonresident alien (the term for estate and gift taxes is “nondomiciled“) to own their U.S. investments and U.S. real estate through a foreign corporation (such as a Panamanian company or a British Virgin Island company).  

Since the 1950’s, this tax plan has failed.  The U.S. courts have ruled for the IRS (more on these cases on this link).  These court cases focused on the power to revoke (section 2038) and the right to the corporate dividends (section 2036).  These tax laws  required the assets owned by the foreign entity to be included in the deceased’s U.S. taxable estate

The best estate tax planning method for the foreign investor involves a trust.   Here is a link on the basics.  In Europe and the United Kingdom have an inheritance tax.  Estate taxes and inheritance differ.  This difference challenges international inheritance tax planners. 
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Section 956 Controlled Foreign Corporation

International tax planning for foreign corporations looks carefully at section 956.  This is the tax law that prevents American companies from investing their foreign profits back into the U.S.

Now, you may wonder “why would Congress passed such a stupid tax law?”.  Well, Congress excels in stupid.  Of course, the President has to approve every new tax law.  So, they share the blame.   The point of this blog is to help you avoid this tax trap.

A foreign tax plan requires U.S. shareholders to have a long term plan.  The income created by section 956 is reported on form 5471.

Section 956 requires shareholders of controlled foreign corporations (CFC) to recognize dividend income if the profits are invested in “United States property.”  The investment in U.S. property creates the taxable dividend.

If you would like to brainstorm your tax planning ideas, then please call me, Brian Dooley CPA, at 949-939-3414 for a complimentary consultation with your CPA or get me easy to read international tax book at Amazon.

I rewrote the law in the format of a simple to use equation. Placing the code into an equation simplifies the law.  You can learn more with my book at Amazon.  Try any of my books on international taxation and planning for a week risk-free.  You will find section 956 explained in easy terms.

If you are interested in exploring international tax strategies for your business, I invite you to email me, Brian Dooley, CPA, at [email protected]


tax planning, avoid taxes, small tax business,

Great Tax Savings using the New IRS Regulations on Debt versus Equity

tax planning, avoid taxes, small tax business,

President John Kennedy (Democrat) is the most respected president of last century. The President and Supreme Court Justice Hand agreed that patriotism does not mean paying more than your legal share.
Supreme Court Justice Holmes said tax planning means you get as close to that legal line as possible.

If you were a tax nerd, like me, you would have read many many articles on the new IRS section 385 regulations (debt versus equity transactions).  Nobody like change and that applies to most tax planners.   But for every action, there is an equal reaction.

While corporate tax planning will be more complex with these regulations, small business tax planning is improved.

 This blog looks at shifting income and wealth by valuing a promissory note.  For estate tax planning, you want the note to have a low value.

For small business income tax planning, you want the note to have a high value or a low value. In the example below,  the note had a low value.  
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